Estimating Cost - Part 1 - By J. Douglas Tebera, PE

21 March 2013

Getting good estimates throughout the stages of design is paramount to making a project a success for everybody. Knowing the cost implications of decisions allows the owner and design team to maximize the value in their decisions and avoid backpedaling on decisions. Uncertainty also means risk and risk leads to leveraging bets through bid alternates. Projects should start with a clear vision that leads in a linear fashion to their execution through a good set of construction documents. Still, a concise final set of documents does not necessarily guarantee a smooth process.

We've seen multiple methods of estimating. On the private side, owners are often convinced they can get the best, and least costly, estimate directly from contractors. They often engage a CM that utilizes their stable of trades to estimate as the design progresses. At first thought, you might think this is an ideal method. Who better to price the project than the people ultimately responsible for delivering the price that matters, the final bid? Still, this route has several pitfalls.

First, owners often select a CM based on their purported ability to provide everything for a low cost. In reality, they all typically rely on similar trade subcontractors and the prices should be comparable when they are estimating apples and apples. If not, they are probably pricing their own oranges. An owner that selects in this fashion often finds the estimate begin to balloon at various stages of the design process, even when little or no additional scope has been added to the drawings. They're left with the difficult decision to buy either apples or oranges.

Second, CMs rely mostly on their trades for pricing and it's those trades often put in a difficult position. They are often not compensated for their time, pretty much ensuring they'll invest the least effort possible. Still, their participation is often a prerequisite for later participating in the real bid. You know, the one where they compete on price. What makes anybody think they are willing to share any details in their pricing along the way? What you get is often just a few lump numbers lacking any sufficient transparency to be verifiable.

Third, trades just don't seem comfortable pricing the incomplete documents during the early stages of a design. For instance, if a food consultant hasn't been fully engaged, and the associated equipment, plumbing, and electrical drawings are understandably undeveloped, the trades often ignore pricing anything until a later stage. That becomes a real problem with the previously mentioned lack of transparency.

Finally, while the CM obviously must convey that they stand behind the estimate, the trades are often unavailable to discuss any specifics. While it's often in their interest to filter the pricing and build cushion into the GMP, it often requires the design team to remove valuable aspects of the project to keep it within budget. In reality, the project would probably already be within budget if truly bid on the open market. But that's another topic entirely.

All things being somewhat equal, an open bidding process reveals the true cost of the project. However, while trades are certainly the real experts at knowing their costs, they and their suppliers work best when given a completed set of documents. Their strength is not in filling the gaps that naturally result early in the design process. Those gaps are often better filled early in the design process by independent cost estimators so the estimate can be openly vetted and discussed.